Microfinance portfolio drops 7.3% to ₹3.14 trillion in Q3, says MFIN

Microfinance loan portfolio fell to Rs 3.14 trillion in Q3 FY26, down 7.3% sequentially, with 50 lakh borrowers losing access to formal finance even as portfolio quality showed improvement

The microfinance sector’s loan portfolio declined to Rs 3.14 trillion as of December 2025, a 7.3 per cent fall sequentially from September, although the pace of contraction has eased, according to the Micro Finance Industry Network’s (MFIN) Micrometer report for Q3 FY26.

 

The decline in portfolio has also resulted in a sharp fall in the number of borrowers being served. MFIN estimates that around 50 lakh clients have lost access to formal finance, calling it a serious policy concern.

 

On a year-on-year basis, the sector’s gross loan portfolio declined 18.3 per cent, reflecting ongoing stress and tighter credit conditions in the microfinance segment. The total number of active loan accounts stood at 10.5 crore.

 

“The moot point as of now is that despite normalisation of credit quality and strict implementation of MFIN guardrails to check over-indebtedness, the sector continues to face liquidity issues,” said Alok Misra, chief executive officer and director at MFIN.

 

He added that the industry expects the proposed guarantee scheme for wholesale lending to ease liquidity constraints. “The good monsoon has created pent-up demand, and microfinance is well positioned to cater to it provided sufficient liquidity is available,” Misra said.

 

During the quarter, NBFC-MFIs disbursed Rs 29,819 crore across 49.3 lakh loan accounts, including both owned and managed portfolios. Overall disbursements were 32.8 per cent higher than the same quarter last year. The average loan size disbursed per account in Q3 FY26 stood at Rs 60,479, up 16.3 per cent year-on-year.

 

Portfolio quality also showed improvement. For NBFC-MFIs, portfolio at risk (PAR) for 31–180 days improved to 3.1 per cent as of December 31, 2025, compared with 6.3 per cent a year earlier.

 

NBFC-MFIs remained the largest provider of microcredit, with loan outstanding of Rs 1.32 trillion, accounting for 42.1 per cent of the total industry portfolio. Banks held the second-largest share, with Rs 83,905 crore outstanding, representing 26.7 per cent of the microcredit universe. Small finance banks (SFBs) accounted for Rs 55,187 crore, or 17.5 per cent, while NBFCs held 12.5 per cent and other MFIs accounted for 1.2 per cent.

 

Across lender categories, portfolios declined on a year-on-year basis. NBFC-MFIs’ portfolios fell 11.9 per cent, banks 33.6 per cent, SFBs 12 per cent, and NBFCs 9.7 per cent between December 2024 and December 2025.

 

Bihar remained the largest state by portfolio outstanding, followed by Tamil Nadu and Uttar Pradesh.